Butter is cheaper, the price of diesel has fallen – but the impression is deceptive: inflation shouldn’t go away that easily. Also because experts fear a wage-price spiral.
Let’s take butter: last summer the price climbed to more than three euros in many places, but now a piece of butter can be had for less than two euros. Also because consumers react very sensitively to price increases for some everyday goods – in the case of butter, this meant that some switched to cheaper margarine. Nevertheless, inflation is still at a high 7.2 percent.
Unfortunately, inflation will not fall as quickly as it has reached unprecedented heights, says Frankfurt economist Volker Wieland, who was a member of the German Council of Economic Experts until a year ago: “Inflation has been eating its way through the economy for some time now. And we’re just seeing when If we look at inflation excluding energy and food, i.e. the so-called core inflation, that it is high and has recently risen to five to six percent – there is no relief in sight for a long time.”
“Tendency is clearly pointing downwards”
After all, energy prices have fallen recently. This is easy to see from the petrol pumps: diesel – last year at more than two euros – currently costs around 1.60 euros per liter.
Changes in other energy costs such as electricity or gas have a delayed effect, according to Economics Minister Robert Habeck: “Because the price that we all pay and the companies pay is also made up of the high prices of the past. But we are talking about here forecasts, and the trend is clearly down.”
This should have a positive effect on utility bills, at least in the coming year. For 2024, the federal government is still anticipating inflation of 2.7 percent. But there are imponderables that have to do with the current wage negotiations, for example.
Higher wages at the railways lead to higher ticket prices
“The best remedy against rising living costs are strong wage and salary increases, which we will fight for in case of doubt with strikes,” says DGB chairwoman Yasmin Fahimi. According to the economist Wieland, what they called for on the occasion of May 1st – namely compensation for inflation in wages and income – is more than understandable. But there is a downside to very high collective bargaining agreements, as recently in the public sector, says Wieland: “This will lead to higher taxes and fees, for example, and it will lead to second- and third-round effects that will keep inflation high.”
Second and third-round effects mean: Higher costs lead to further price increases. This could also be seen in concrete terms in the collective bargaining dispute at Deutsche Bahn: significantly higher wages are likely to result in higher ticket prices, which in turn could fuel inflation.
So the development remains exciting. Current experience teaches one thing above all: if central banks and politicians aren’t careful, inflation can come quickly, but is difficult to combat. As Finance Minister Christian Lindner said: “It’s a tough beast anyway, this inflation.”